Russia says Sakhalin to go ahead

Work on the Sakhalin-2 oil and gas fields should continue according to Russian authorities, in an apparent softening of Moscow’s stance following criticism from Japan and Europe.

20 Sep 2006 12:32 GMT

Sakhalin is the world's largest energy project

Kirill Androsov, Russia’s deputy economy minister, said on Wednesday that he didn’t foresee a halt in the project.

“I don't see any reason to stop work on the project before the end of the technical economic assessment," he said.

On Monday, Russia revoked an environmental permit for the Sakhalin-2 project, the largest privately funded energy venture in the world, signalling that work should be halted.

Shell owns a 55 per cent stake in the project, with Japanese firms Mitsui and Co and Mitsubishi Corp holding the remainder.

Environmental concerns

Russian officials complained after Shell announced a doubling of project costs to $20 billion last year, and said the project was ignoring environmental standards.

Androsov said the cost projection for the project could be changed, depending on findings made by technical experts.

Work is continuing on the second phase of Sakhalin-2, which is aimed at developing the project's gas infrastructure.

"Russia has no intention of ending or freezing the Sakhalin-2 project"

Alexander Losyukov, Russia's ambassador to Japan

"As we haven't been served any official notice, the construction continues as planned," said IvanChernyakhovsky, the project consortium spokesman.

Officials said checks needed to obtain a new permit could take six months or more.

Alexander Losyukov, Russia's ambassador to Tokyo, said Russia was interested in a quick completion of the Sakhalin-2 project and would respect its obligations under an agreement with the Shell-led consortium.

"Russia has no intention of ending or freezing the Sakhalin-2 project," Losyukov said.

"We are interested in the project working fully and in receiving the benefits from it that we are expecting," he added.

Energy diversity

The Russian government's revocation of the environmental permit had provoked a sharp response from Japan, where Shinzo Abe, the country’s next prime minister, told reporters that delays could "have negative effects on Russia-Japan ties in general."

Japan is almost entirely dependent on energy imports. It has pinned its hopes on oil and gas from Sakhalin to diversify its choice of supply from the Middle East.

The first deliveries from the Sakhalin-2 project were expected in 2008 and delivery contracts have already been signed with a series of Japanese energy companies.

British officials also expressed concern over the move. Andris Piebalgs, EU energy commissioner, called on Russia to outline reasons for the withdrawal of the permit.

“I believe that they should be clearly and unequivocally identified by the Russian authorities and Shell must be given an appropriate time to resolve them," Piebalgs said Tuesday.